Twitter Inc Still A ‘Crapshoot’ Despite Earnings Beat: Barron’s

Even though Twitter came out on top of the earnings estimate, many still doubt the long-term growth prospects of the company

Twitter beat the consensus estimate with its recent earnings, but it was not enough to make the stock impressive to Barron’s; the financial newspaper’s analyst, Tiernan Ray, wrote in a research note. Citing below consensus MAU growth and unimpressive advertising cost growth, the analyst noted that not many are optimistic on the stock.

Earnings report tells a half-truth

There are many reasons that led him to call Twitter a “crapshoot.” From afar, the micro-blogging site appears to be a growth company and a good investment option. However, if one observes Twitter closely, one could tell that the company has revealed only half-truths that it managed to increase its earnings by significantly increasing its revenues, says a report from Bidnessetc.

“With Twitter shares fetching 61 times next year’s projected earnings, it’s not like it isn’t getting credit for strong growth. This stock, like Yelp, and like Pandora, which crashed 17% on Friday, remains a crapshoot,” noted Ray.

Twitter’s projected earnings for next year are around 60 times the current stock price, but the primary concern for the company is MAU growth. The projected earnings reflect a stable user growth and an active audience, and this is the part in which the company needs to be cautious. Even though Twitter has achieved some success with monetization, it has not been able to grow its user base much, raising doubts about its long-term prospects.

Twitter failed to capture the market?

For the most recently completed quarter, Twitter beat the consensus analyst’s estimate by 6 cents. However, its monthly active user (MAU) growth missed estimates as the company was able to add only 4 million users during the quarter, bringing the total count to 288 million. So far Twitter has also failed to monetize the untapped potential in the social media market, which is evident from the fact that Facebook-owned Instagram has overtaken Twitter in terms of user count.

Separately, in a report issued on Friday, Cantor Fitzgerald gave a price target of $62 to the stock with a Buy rating. Overall, three analysts have assigned a Sell rating to Twitter, 21 have rated the stock as a Hold, while 18 have issued a Buy rating. Presently, Twitter has a consensus rating of Hold and an average price target of $51.77 per share.

On Tuesday, Twitter closed down 2.24% at $46.26, and year to date, the stock is up by almost 30%.